Southern Sprawl

Sprawl and “smart growth” emerged as hot-button topics for retail real estate developers in the late 1990s. Municipalities struggled to balance the desire for continued economic development against growing angst about traffic jams and monotonous strings of big boxes and strip malls.

Atlanta, with its clogged arteries and seemingly unending appetite for new development, became the poster child for sprawl — and the rallying cry for controlled growth advocates. In the years since, a resurgence in downtown development across the country has touched the Peachtree City. So while regional destinations such as the Mall of Georgia exemplified development in the 1990s, today many developers are following the model of Atlantic Station, a high-density mixed-use project inside Atlanta's city limits. Does that mean concerns about sprawl in the Southeast have abated? The answer depends on where you look. Cities are seeing in-fill and higher-density development, but interstate corridors continue to grow horizontally.

In the Southeast, the I-85 corridor linking Atlanta, Charlotte, N.C., and the Research Triangle offers the most opportunity for greenfield development. In classic fashion, retail real estate players are looking first at buying land near the major intersections of feeder roads being built along I-85. Critics often label this development pattern “sprawl,” says Michael Beyard, the Urban Land Institute's senior resident fellow for retail and entertainment. “A developer looks two or more interchanges down the road and that's where growth goes,” he explains. “Most communities are so desirous of the jobs and taxes that unless there's a geographic impediment, there's nothing to stop it.”

The stakes get higher when you take into account how fast this area is growing. I-85 is not just another rural highway. Researchers at Virginia Tech's Metropolitan Institute recently identified this corridor as “Piedmont,” one of 10 “megapolitans” around the country — areas where a string of cities and suburbs blend into one giant settled area. Megapolitans, which include Arizona's booming Valley of the Sun as well as the Boston to Washington, D.C. corridor, will see the majority of population growth during the next 25 years.

Of these zones, Piedmont has the most diffuse settlement pattern: just 67.3 percent of its population is urbanized, according to Virginia Tech, compared to the average of 86.4 percent for all 10 megapolitans. Many real estate players see nothing wrong with this and predict that Piedmont's density will increase over time, meaning that the time to develop is now.

The Don M. Casto Organization, for instance, is snapping up real estate — both raw land and existing shopping centers — throughout the I-85 corridor. It recently acquired University Commons, a 238,000-square-foot Target-anchored property in Burlington, N.C. While the surrounding population is relatively small, admits Dixon Fleming, a partner with the Ohio-based firm, it is expected to grow since the property lies at the center of the Research Triangle.

“Sometimes we don't mind being first because we can see where the trends are going,” Fleming says. “While there's certainly risk associated with any type of investment activity, we think it's going to be minimal because the growth is taking place here. The Carolinas, thanks to quality of life, always pop up as one of the best places to live or start a business. So it's not a field of dreams, where we'll build it and they will come, there's already an established trend.”

Developers Diversified Realty Corp. shares this outlook — one reason why it's already expanding Beaver Creek Crossings, a 600,000-square-foot power center that opened this year in Apex, N.C., at the site of a future interchange on a planned beltway around Raleigh. “People who get out in front of something are correct,” says Dan Herman, a senior vice president for the company. “Suburban sprawl is just going to happen. In the right markets, you get ahead of the curve.”

Sprawling up and out

As retail developers acquire greenfields in anticipation of future population growth, in a few markets they're breaking with past models as they actually begin developing. Rather than constructing typical power centers, some are creating hybrid properties that include some traditional big-box tenants, but complement that with the looks and tenant roster of a lifestyle center. One such project is Crosland Inc.'s The Shops at Greenridge, a 514,000-square-foot center at the junction of I-85 and I-385 outside Greenville, S.C.

“It's kind of a ‘wave of the future’ development,” observes Jack Oliaro, a senior vice president and director of development for Jones Lang LaSalle Retail. “It was a cornfield at the interchange where they combined big boxes like Lowe's and Dicks Sporting Goods, with tenants like Ann Taylor Loft and Chico's. It works really well because if they'd just done a lifestyle center, they may not have had enough density to support that use.”

These hybrid projects tend to please local planning boards as well as shoppers because they provide more attractive, pedestrian-friendly environments. Whereas typical power centers feature a string of big boxes fronted by massive parking lots, these projects feature smaller clusters of stores linked by special pedestrian-only areas.

It's no surprise the trend isn't confined to the I-85 corridor. Outside Nashville, Newtown Oldacre McDonald LLC is doing the same thing with its Nashville West project, off I-40. In addition to blending big box and lifestyle retail tenants in the first 500,000-square-foot phase, future phases of the project are expected to contain office and residential components, says Liz Whiteside, a senior vice president and principal of The Staubach Co.'s retail group.

As developers add office and residential components to their exurban projects, they're often building on experiences gained with mixed-use properties in downtown districts, which usually entails going vertical. Edens & Avant Realty Inc., for instance, is adding a second floor of office space above shops at Davidson Commons, a 90,000-square-foot grocery-anchored center it's building in Davidson, N.C.

While these hybrid projects make economic sense in certain markets, developers often have little choice but to become creative if they want to build. “The suburbs are getting more demanding on the type of product they have in their markets and they want a mixed-use feel,” observes Lyle Darnall, vice president of development in the Southeast for Edens & Avant. “But in a lot of places the demand isn't there for it yet.”

Other developers share this concern. The Sembler Co. has been pursuing mixed-use projects in Atlanta's suburbs — properties that combine two levels of retail topped with high-rise residential towers, which David Goldberg, a spokesperson for Smart Growth America, labels “revolutionary” for a developer that's traditionally known for its suburban shopping centers.

Jeffrey Fuqua, Sembler's president of development, notes that this strategy works best in close-in, affluent suburbs. Going vertical, he explains, is expensive and also means that residential and retail components must be developed simultaneously, rather than in phases that allow for demand to amass. Well-established markets with high income levels, such as Atlanta's Buckhead suburb — where Sembler is just beginning a Brookhaven Place, a 50-acre site containing a 600,000-square-foot lifestyle center integrated with 1,700 adjacent apartments — can support the upscale retailers and higher rents that make these projects work financially.

“Mixed-use is here to stay, but the high-density projects, where you build hundreds of units inside a quasi-power center village, are a lot different and you don't see them in too many places,” Fuqua says. “And when someone's only doing 100 residential units, it's really more for effect than to create a high-density living environment.”

So with a few exceptions, it seems, for now the Southeast will continue to see low-density residential and retail development. But no one has a crystal ball — and as Bernard Haddigan, senior vice president and managing director of the National Retail Group at Real Estate Investment Brokerage Co. observes, the road system that fuels sprawl can also limit it.

“I just don't see how it's effective to live 45 or 60 miles outside Atlanta,” he says. “People are commuting for several hours a day and it's hard to see how the region can continue growing without an effective rapid transit system. That's a big reason why you're seeing people move back downtown.”